Should You Quit Your Job When You Start a New Business?
What research says about working in your startup part-time versus full-time.
Posted September 25, 2016
The public’s interest in entrepreneurial ventures has never been greater. As of 2015, 27 million working-age Americans (close to 14% of the population) ran their own businesses. And according to the 2015 Kauffman Index, more than 6.3 million new businesses were started last year.
People start new businesses for many reasons. Some are truly self-motivated and feel called to become their own boss and create an enterprise. Others become entrepreneurs out of necessity, say, because of an impending lay-off or because they are unhappy with their job. Whatever the reason, a question many soon-to-be and new entrepreneurs face is whether they should start their new business while keeping a full-time or part-time job. Or should they become self-employed full-time, relying on the new business entirely for their livelihood?
For most people, starting a new business is risky and financially stressful. Would-be entrepreneurs face the real possibility that their fledgling business will fail within the first year. And even if it succeeds, it is usually difficult to take out money and pay oneself in its early stages. Working a day job helps to reduce these risks. And in fact, studies indicate that over half of all new entrepreneurs start a business while working a full-time job.
But what does scholarly research on entrepreneurship have to say about this decision? If you are a new or aspiring entrepreneur, should you keep your day job or quit it? (Scholars refer to entrepreneurs who keep their day job as “hybrid entrepreneurs”).
The research findings on this question are quite clear: It is better to keep your day job initially when you start a new business, and transition gradually into the business full-time.
New ventures started by hybrid entrepreneurs are more likely to survive.
A 2014 study conducted by management researchers Joseph Raffiee and Jie Feng examined the decisions and outcomes of over 6,300 entrepreneurs over a 14-year period. They found that new ventures started by hybrid entrepreneurs were 33% less likely to go out of business than those started by full-time self-employed individuals over the study period.
The authors argued there are three reasons for this finding. The first reason, in their own words, is that “hybrid entrepreneurs benefit from the ability to learn about the quality, potential, and feasibility of their business idea” during the business’ early stages. In other words, they can test the waters. And if necessary, they can pivot to a different, more promising idea if their original idea is found lacking. Second, while in their day jobs, hybrid entrepreneurs are better able to learn about their own skills and abilities as entrepreneurs and apply them to their own business effectively. And third, working for someone gives individuals a more realistic preview of what it means to be an entrepreneur rather than relying on glamorous, but false, ideas based on media and folklore.
Starting a new venture while keeping a job gives the entrepreneur financial breathing space and the opportunity to acquire skills and make adjustments as needed to help the venture succeed. Not surprisingly, the study’s authors also found that individuals who are risk-averse and less confident of themselves are the ones more likely to choose the hybrid approach.
The hybrid entrepreneurship model is distinct from the full self-employment model.
An interesting question is whether the hybrid route gives more people an opportunity to become entrepreneurs. One 2010 study, using data of over 40,000 Swedish men between 1994 and 2001, found that hybrid entrepreneurship is a distinct and unique way of starting a new business compared to those choosing full self-employment. It offers a path towards become fully self-employed, but only if the financial payoffs make it worthwhile. And people who choose the hybrid approach wouldn’t have considered full self-employment directly (perhaps for reasons mentioned above)
The author team, led by entrepreneurship professor Timothy Folta, also found that hybrid entrepreneurs kept their day job for many reasons. Some had worked for their employers for a long period and had financial and emotional switching costs. Others wanted to learn new skills or consider the possibility of a new career, while still others already earned a high income but wanted to supplement it through self-employment because the opportunity presented itself. Interestingly, those working at smaller companies (rather than the mega-corporations) were more likely to take the hybrid route rather than jump straight to full self-employment.
The authors’ conclusion about the importance of the hybrid model in the future is particularly noteworthy:
“Hybrid entrepreneurship corresponds to increased emphasis on nonstandard work arrangements, where workers are increasingly working part time, have temporary or contract work, and engage in holding multiple jobs or moonlighting. For example, the number of temporary jobs increased 50% from 1990 through 1999 in Sweden, and the trend is similar in other countries. This study suggests that hybrid entrepreneurs represent a distinct and growing category in the labor market.” (References omitted).
So what can we conclude from these research studies?
- Keeping a job (or even two) that will pay the bills and put food on the table while exploring self-employment cautiously and by stages is a smart way to become an entrepreneur. Most of us have hobbies, interests, and activities we enjoy and these can be turned into a source of additional income at first, and then perhaps, if we are lucky, into a new full-time career that bring financial success and a sense of accomplishment. For others who want to form a start-up to sell a new, innovative product or service, the same process applies.
- Research shows that a majority of those who start a new business use the hybrid entrepreneurship approach. It reduces financial risk, allows them to learn new skills and gain useful knowledge, deal with early failures, and see if they actually enjoy running the new business and want to pursue it full-time. Without the hybrid approach, far too many people would never try to start a new business, and rates of entrepreneurial activity would flag.
- Perhaps most important of all, new ventures started by those who used the hybrid approach and keep their day job (or jobs) are more likely to be successful in the long-run.
Becoming an entrepreneur is never easy. Why not increase chances of success and reduce amount of stress and pressure by using the hybrid approach? The only downside of hybrid entrepreneurship is that it will involve hard work, by meeting the demands and responsibilities of the day job, and then building the new business after hours. But the up-sides seem to far outweigh this downside.